Understand Mortgage Before Signing Papers

Q: When I bought my house in 1998, I got a 30-year mortgage priced at 7.75 percent interest rate mortgage.

A couple of years ago when refinancing was “such a good deal,” I went through a national website to get a good deal. The loan officer I spoke with recommended a 4.43 adjustable rate mortgage (ARM).

He told me that 80 percent of the mortgages he wrote were ARMs (he was based in California). I’m retired and on a fixed income, so I decided to go ahead with the refinancing and add the closing costs to the back of the mortgage. The mortgage balance rose from $137,000 to $145,000.

They sold my mortgage back to the same company I had my original mortgage with (a big, national lender) and that I do not like because they are so inflexible and high-priced.

I had four options from the online lender and because of my limited income I chose to pay the least-expensive option on a monthly basis.

I recently looked at my statement and was shocked to find that I’m now paying 7.87 percent interest and my mortgage is now $149,000, $12,000 more than when I started the whole process in an effort to lower my costs.

Is there anything you would recommend to help me get out of this nightmare? Do you think I have any legal recourse?

A: I’m not an attorney, but the only thing that seems wrong to me is that you didn’t really understand what you were getting into at the time. You jumped from a so-so interest rate to an adjustable rate mortgage — and paid a lot of cash to refinance.

Unfortunately, you now have a really lousy loan, and your balance is going up. Don’t blame your lender (although, they probably shouldn’t have offered you that loan) — blame yourself. You signed the papers when you didn’t really know what you were getting.

If you have good credit, you should call around to see if you can qualify to refinance to a 30-year fixed-rate mortgage at around 6 percent. If you don’t want to pay any closing costs, you’ll pay just a quarter point more, maybe 6.5 percent.

That’s still a lot better than what you now have. But please be sure to read the fine print and look at all the disclosures before you sign them. For more details, or to have someone walk you through the process, please contact a real estate attorney.

As a side issue, in some states, some lenders have gotten into trouble with their business practices. Some of them used their influence to convince homeowner’s to refinance their loans with adjustable rate mortgages without proper disclosure of the loan terms.

Whether you received the proper disclosures, I don’t know. But you may want to do some research in your state to determine whether your mortgage broker or the end lender is involved in any litigation on these issues. You may decide to talk to an attorney about your case or research the matter further with the attorney general’s office in your state or by doing some leg work on the Internet.

If it turns out that your lender or broker has been accused of pushing inappropriate loans on unsuspecting borrowers, you may have an option to go after the lender to unwind your transaction or at least make you whole.